NEW DELHI | MUMBAI: The finance ministry has agreed to infuse about Rs 3,000 crore into State Bank of India in a compromise solution to meet the bank's immediate capital needs. SBI is now likely to defer its proposed rights issue to later in the year or even next fiscal.

"We are yet to finalise the modalities of the capital infusion," a finance ministry official told ET. Asenior SBI official told ET that the bank had not yet heard from the finance ministry.

The finance ministry was not in favour of State Bank of India raising capital through a rights issue since it would have entailed additional expenditure for the government in what is likely to be a financially difficult year.

The government will have to subscribe to the bulk of the rights SBI may Put Off Rights after Rs 3kcr Central Funding issue because of its 59% stake. The Rs 3,000-crore infusion is likely to come from the Rs 6,000 crore set aside by the government for bank capitalisation in 2011-12, and hence will not have an impact on the fiscal deficit.

The government has committed to a Tier-I Capital to Risk Weighted Asset Ratio (CRAR) of 8% in public sector banks. The CRAR is a measure of a bank's ability to absorb losses from lending before its depositors take a hit. A higher ratio means more protection for depositors.

Capital infusion has become urgent for State Bank of India because its CRAR dropped to 7.8% at the end of March 2011 from 9.9% in December 2010 because of a sharp step-up in provisioning that saw profits plummet 99% to Rs 21 crore in the January-March 2011 quarter.

"The decline (in CRAR) is mainly due to the provisions made towards the pension fund on account of wage revision — Rs 7,927 crore up to FY10 taken through the capital account," the bank had said while announcing its 2010-11 results. The key measure of solvency dropped further to 7.6% as of June 30, the bank's first quarter under Chairman Pratip Chaudhuri, who took over in early April succeeding OP Bhatt.

The bank had announced plans for a Rs 20,000-crore rights issue in February last year. A revised proposal had pared the size to betweenRs 9,000 crore and Rs 14,000 crore.

It seems the government is not keen on that either and just want to provide enough capital so that SBI can achieve the minimum 8% CRAR by the end of the current year. This will allow the finance ministry to push the rights issue to the next financial year when the fiscal situation would be more comfortable.

North Block has repeatedly said it wants to stay within the budgeted fiscal deficit of 4.6% of GDP despite serious doubts voiced by independent experts and even the Reserve Bank of India. The capital infusion may be done by way of a preferential issue or preference shares and will help the bank increase its CRAR to 8% from 7.6% for June quarter this fiscal.

The bank posted a profit of Rs 1,584 crore for the June quarter. Though regulatory requirement for Tier-I CRAR is 6%, the government wants banks to maintain it at 8%. Analysts feel a capital infusion ofRs 3,000 crore would bring SBI closer to the 8% CRAR but not solve the large fund requirement of aroundRs 15,000 crore. "Any such amount is not going to be enough. Since the government has not made adequate provisions, this will just be a stop-gap arrangement to help it in the near term," said Vaibhav Agrawal, VP (research), Angel Broking.

He added that from a 3-4 year perspective, it requires infusion of around Rs 15,000 crore so that CRAR remains closer to other peers who are maintaining it at more than 9%. The SBI stock closed at 1,889, down around 4%, on Friday. It has been a major market underperformer so far this year, falling around 33% year-to-date as compared to a 23% fall in the Sensex this calendar year.